Almond cracking results in Australia

Australian almond business Select Harvests has announced a Net Profit After Tax of $29 million for the 2014 financial year, up from $22.9 million in the 2013 financial year.

Despite some late season difficulties with harvest and “ongoing tough conditions in the retail market” Select Harvests earnings before interest and tax were $41.8 million, up 11 per cent on 2012-13.

Australia over the past two decades has transformed itself from an insignificant nut producer to become the world’s second largest producer of almonds.

There are two major Australian-based growers, namely the Singaporean-based Olam Group and its keen rival the ASX-listed Select Harvests.

Commenting on the latest results, Select Harvests Managing Director Paul Thompson said “the Almond Division produced a strong result, despite the tough conditions during the late harvest”.

“The performance demonstrates the resilience of the business and continues to affirm our strategy and decision to move from a manager of orchards to an operator of orchards,” Mr Thompson said.

Mr Thompson said Select Harvests investment in frost fans demonstrated the benefit of these sort of strategic investments.

“Last year we had two frost events, this year we had 14,” Mr Thompson said. “If the frosts had the same impacts as the 2007 event, the potential revenue loss would equate to $2.5 million. Our investment in fans is $1.2 million,” he said.

“The division generated strong cash flows,” Mr Thompson said. “With average age of the Select Harvests orchard being 10.9 years and almond trees maintaining mature yielding productivity until around 28 years of age, we are well positioned to deliver strong cash generation for many years to come. This needs to be balanced against supporting our Greenfield investments, which is our future,” he said.

“While physical conditions were tough, the market conditions and currency were favourable and Select Harvests average almond price for FY14 was A$8.50/kg, up 33 per cent on Select Harvests average almond price for FY13 of $6.38/kg,” Mr Thompson said.

Australian almond growth

Select Harvests has changed its growth strategy to being an orchard operator, rather than an orchard manager, after Singapore-based Olam dropped Select Harvests as manager of its Timbercorp almond groves. Australian Food News first reported in 2011 that Select Harvests had made its first major acquisition of almond orchards for $19.5 million.

The Singapore-based international Olam group bought 8,000 hectares of almond groves and 41,000 megalitres of water following the collapse of Australian-owned agribusiness managed scheme operator Timbercorp in 2009, around the time of the Global Financial Crisis.

In 2012, Australian Food News reported the Victorian Government was to provide financial incentives for the Singaporean-owned Olam to build a new almond processing plant in Victoria, although that decision was heavily criticised. Critics of the Victorian Government’s decision suggested that the money ought to have been invested in Australian-owned businesses.

Select Harvests acquisitions

During the 2014 financial year, Select Harvests made its first South Australian investment when it acquired the Allinga property at Loxton. Allinga has 680 acres of planted almond orchards and another 1,000 acres suitable for almonds that will be planted out in the 2015 financial year. The Company also acquired another 3 properties (Amaroo, Mullroo and Mendook) in South Australia, Victoria and New South Wales respectively. These three properties delivered an additional 2,481 acres of planted almond orchards and 4,465 acres of land suitable for almonds that will be planted out in the next three years.

Select Harvests Chairman, Michael Iwaniw said the acquisitions took the Company “a long way towards achieving our strategic objective of doubling our planted acres by 2018”.

Food Division

Mr Thompson said the Food Division of Select Harvests produced a performance in the 2014 financial year consistent with the previous year and the Company’s strategy to re-invest in its branded consumer and industrial business.

Growth in industrial sales of almonds

The Industrial business had a “strong” year, with sales up 24 per cent, which Mr Thompson said was the result of “supplying innovations and value added products to food processors plus expanding our business further into the Asia Pacific region”.

“The use of tree nuts as an ingredient continues to grow and our industrial division has been successful in attracting business from both the small local food processors and the large multi-nationals such as Unilever and Mars,” Mr Thompson said.

Retail branding strategy and innovations

Mr Thompson said market conditions with the major local retailers had made the Consumer Brands business “challenging”.

“We have led the way with product innovations and implemented significant price increases to keep abreast of the commodity price increases,” Mr Thompson said.

Mr Thompson said Select Harvests had made a number of strategic investments in its Consumer Brands, Lucky Smart Snax and the relaunched Sunsol Muesli.

The investment in these brands has included:

researching and improving consumer insights

innovating

reformulating

repackaging

relaunching

Strategic objectives

Mr Thompson said Select Harvests’ ongoing strategic objectives include control of critical mass of almonds, improvements to yield and crop value, moving towards being best in class supply chain, investment in industrial and trading division, turnaround of the packaged food business, fixing of systems and processes, and engaging with its people and stakeholders.

Investment in biomass plant

Select Harvests also announced that its Board had approved an $11.9 million investment to build a Biomass Electricity Cogeneration Plant at Carina West to supply the Company’s processing facility and some of the Victorian farms with power.

The investment will commence immediately and it is expected the facility will be commissioned in November 2016.

The plant will use Belgian technology with over 4,000 installations globally, but will be the first plant to use almond hull as a feedstock. Mr Thompson said the plant will generate 2.5 MW of electricity per annum plus 17.5 tonnes of steam per hour.

“Once running, we will be returning 50 per cent of the electricity to the network and providing supply security to the Robinvale area and creating a volume offset against our usage in other regions in Victoria,” Mr Thompson said.

Mr Thompson said the facility will employ 8 people, and has an expected payback of 5 years. He said it “abates 23,500 tonnes of Greenhouse gases and produces 1,500 tonnes of potassium which we can potentially recycle back to the orchards”.

“This plant plus the re-organisation of our internal energy network will save approximately $2 million per annum once fully operational,” Mr Thompson said.

Select Harvests is currently in the process of applying to the Victorian Government for financial support for the project.